Zcash and Privacy Protocols Brace for SEC’s ’Do-or-Die’ Showdown: Are Developers Personally Liable for Code?
The SEC's gavel hovers over privacy coins—and the developers who build them.
Zcash, Monero, and their cryptographic cousins face a regulatory reckoning that could reshape open-source development. The question isn't just about tokens; it's about holding the architects of code personally accountable for how others use it. A ruling against developers would send a chilling wave through GitHub, potentially criminalizing innovation.
The Privacy Paradox
Privacy protocols operate on a simple, powerful premise: financial transactions are nobody's business but your own. They use advanced cryptography—like zk-SNARKs in Zcash—to shield sender, receiver, and amount. For users in oppressive regimes or anyone valuing financial autonomy, it's a lifeline. For regulators, it's a black box.
The SEC's argument likely hinges on a redefinition of 'responsibility.' If a protocol can be used for illicit activity, does that make its creator liable? It's like suing a locksmith because a thief picked a lock. The precedent would force developers to become gatekeepers, vetting users and censoring transactions—the antithesis of permissionless tech.
Code Is Speech, Until It's a Security
The legal battle centers on the Howey Test. The SEC may claim that by building and maintaining a network, developers are promoting an 'investment contract.' A favorable ruling for the agency would blur the line between writing software and issuing a security. Expect venture capital to flee privacy projects overnight, and watch a generation of builders think twice before pushing code.
Market Tremors Ahead
Privacy coin volumes have already dipped on major exchanges preemptively delisting them. A decisive SEC win could trigger a fire sale, while a surprise dismissal might spark a furious rally—proving once again that in crypto, the biggest gains often come from betting against regulatory overreach. After all, nothing makes a technology more valuable than trying to ban it.
The outcome cuts to the core of software freedom. Will code remain a form of expression, or become a liability? The answer doesn't just affect a few niche tokens—it determines whether innovation lives in the open, or moves further into the shadows. And if history's any guide, the shadows always win.
The privacy-preserving computation bet
The panelists represent a technical thesis: that zero-knowledge proofs, homomorphic encryption, and programmable privacy can satisfy compliance requirements without exposing transaction graphs to blanket surveillance.
Aleo, Espresso, Zcash, and similar projects build systems that allow users to prove they meet regulatory thresholds, are non-sanctioned counterparty, have complied with tax reporting requirements, and are accredited investors, without disclosing the full transaction history.
The theory assumes regulators will accept selective disclosure backed by cryptographic proof rather than requiring full ledger visibility as the default.
SpruceID’s Wayne Chang brings a complementary angle: decentralized identity systems that let users control attestations about compliance status without relying on centralized intermediaries.
The counterargument, implicit in the Samourai and Storm prosecutions, is that privacy-by-default architectures obscure enforcement sight lines too much.
Prosecutors argued that Tornado Cash and Samourai enabled bad actors precisely because the tools did not distinguish between legitimate privacy use cases and criminal obfuscation.
The DOJ’s position treats privacy tools as infrastructure that must be designed with law enforcement access built in, not bolted on.
That framing collapses the distinction between “tool” and “service” and treats developers who deploy privacy-preserving code as operators of financial services subject to Bank Secrecy Act obligations.
What the SEC gains from this conversation
The roundtable gives the SEC a public record on whether privacy-preserving technology can meet securities law obligations.
The commission does not regulate mixing directly; that is, FinCEN and DOJ territory. However, it governs the issuance, trading, and custody of digital assets that could be structured with privacy features.
If a tokenized security uses zero-knowledge proofs to hide transaction details, does that violate broker-dealer reporting requirements?
Can an alternative trading system use privacy-preserving computation to match orders without disclosing pre-trade information to competitors while still meeting Regulation ATS transparency rules?
The roundtable panelists will potentially answer those questions live, on the record, with Chairman Paul Atkins and Commissioners Mark Uyeda and Hester Peirce present.
The timing also lets the SEC position itself relative to FinCEN.
If FinCEN finalizes the Section 311 mixer rule with broad restrictions, the SEC can point to its December roundtable as evidence that it explored whether technology could solve the compliance problem before defaulting to prohibition.
On the other hand, if FinCEN softens the rule or delays it further, the SEC’s roundtable becomes a signal that the administration is open to privacy-preserving solutions that meet law enforcement needs.
Either way, the event builds a record that lets the SEC claim it consulted technologists, civil libertarians, and industry before deciding how to treat privacy in digital asset regulation.
The SEC now decides how much weight to give privacy-preserving computation in its own rulemaking.
If the roundtable reaches consensus that zero-knowledge proofs can meet compliance obligations, the commission can incorporate that flexibility into broker-dealer, ATS, and custody rules for digital assets.
If the roundtable fractures into “privacy is a right” versus “privacy enables crime” camps, the SEC defaults to existing surveillance-heavy frameworks and leaves privacy advocates to litigate in court.
The Samourai sentences and the Storm verdict, for now, have already defined the boundaries of criminal liability.
The Dec. 15 roundtable decides whether there is space inside those boundaries for privacy-preserving technology to exist at all.
